Swiss 2-Year Yields Turn Negative, 10-Year Yield Down the Most Since 1994
Swiss two-year note yields stayed negative for a second day after central bankers announced more measures to weaken the franc, showing investors may sacrifice capital for the perceived safety of investment in the currency.
The Swiss two-year note yield fell five basis points to negative 0.06 percent at 4 p.m. in London as stock markets slid around the world. The yield yesterday slid 10 basis points into negative territory, indicating investors will receive less when the bonds mature than the sum they paid for them. Ten-year Swiss yields tumbled 19 basis points today, the most since Bloomberg began collecting the data, to 0.86 percent.
The Swiss National Bank said yesterday that it would boost liquidity to money markets and increase cash available to banks to restrain franc appreciation. The SNB on Aug. 3 lowered its target for the three-month Swiss franc London interbank offered rate, or Libor, to “as close to zero as possible.”
“The dilemma is that most measures the authorities can decide to weaken the franc add to the downside to rates,” allowing “Swiss negative rate anxiety” to spread, Christoph Rieger, head of fixed-income strategy at Commerzbank AG in Frankfurt, wrote in an e-mailed report today.
The two-year yield had previously dipped below zero on Aug. 11 before recovering.
The Libor rate banks charge to lend to each other in francs for three months dropped to a record low 0.01333 percent today from 0.02750 yesterday, the British Bankers’ Association said. Futures on three-month franc Libor rose, pushing implied yields on the December contract as low as negative 0.71 percent.
Negative Libor
Credit Suisse AG, the Zurich-based bank, submitted a negative three-month Libor for the first time, at negative 0.10 percent compared with 0.04 percent yesterday, BBA data show.
“The demand for francs via currency forwards, bonds and others is pushing yields ever deeper into negative territory,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London.
Swiss assets aren’t the only ones to have experienced negative interest rates. U.S. Treasury bill yields dropped below zero earlier this month as Europe’s sovereign-debt crisis threatened to engulf the region’s larger economies.
One-month Treasury bill yields, which fell to negative 0.03 percent on Aug. 5, were at zero percent today.
‘Not Unprecedented’
“Negative nominal rates are not unprecedented and could be related to expectations of penalties on foreign inflows, like those imposed in the 1970s” by Switzerland, Francesco Garzarelli, co-head of fixed-income strategy at Goldman Sachs Group Inc. in London, wrote today. “However, these were not successful in stemming the franc’s appreciation at the time.”
The rush to francs during 1970s inflation resulted in effective rates of about negative 20 percent, Galy said.
The franc has strengthened 12 percent this year, making it the best performer among 10 developed-market currencies, according to Bloomberg Correlation-Weighted Currency Indexes.
The Swiss currency swung between gains and losses today, and was recently 1.1 percent stronger at 1.12692 per euro and 0.2 percent higher at 78.82 centimes per dollar. The currency reached records of 70.71 centimes per dollar and 1.00749 to the euro respectively on Aug. 9.
Swiss Finance Minister Eveline Widmer-Schlumpf yesterday said the government would support any measure to restrain the currency deemed appropriate by the SNB, including a currency peg or market interventions.
To contact the reporter on this story: Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Keith Campbell at k.campbell@bloomberg.net
Rate this Page